Corporate Insurance Underdog Ramps Up for Challenge

By JOSEPH B. TREASTER

Published: December 27, 2006

Joseph J. Plumeri took to the stage with a showman's flair, jabbing the air for emphasis and insisting that his scrappy company -- a distant third in the rankings among corporate insurance brokers -- was poised to lead the industry.

''We could be No. 1,'' he told hundreds of employees at regional offices of his Willis Group Holdings here in Nashville. ''We have a wonderful opportunity.''

In a business dominated by two giants with 70 percent of the market between them, making a bid for the lead is a long shot at best for Willis.

But Willis has become the fastest-growing company in the industry in the aftermath of a scandal that tarnished all the brokers. And speculation that Mr. Plumeri is considering a major acquisition has persisted since the fall, when several newspapers reported that he was proposing a takeover of Marsh & McLennan Companies, the longtime industry leader.

Marsh & McLennan, based in New York, has indicated it is not interested in being taken over, and a recent rise in its stock price has made it less vulnerable.

But Mr. Plumeri, who refuses to discuss any potential acquisition plans, has not discouraged the speculation. He flashed a copy of a newspaper article about Willis and Marsh & McLennan on a big screen as he addressed his employees here, and he recently told analysts ''it would be silly for me to tell you'' that a major acquisition was out of the question.

People who have been briefed on Mr. Plumeri's plans say that he has outlined merging the two companies in several letters to Marsh and that he has not given up on the idea. Moreover, they say, he has the backing of Kohlberg Kravis Roberts, the leveraged buyout firm in New York with a record of major deals. A spokesman for Marsh would not comment on the letters or other aspects of the reported proposal. A spokesman for Kohlberg Kravis did not return a reporter's call.

With $10 billion in revenue last year and 55,000 employees, Marsh is nearly five times larger than Willis. But some analysts say a merger could work. The companies have complementary strengths in different sectors of the market, administrative costs would be reduced and analysts say that Mr. Plumeri, who spent more than 30 years as a top executive at Citigroup and its predecessors, could command a much bigger operation.

''Joe could pull it off,'' said Cliff H. Gallant, an analyst at Keefe, Bruyette & Woods. ''He's got a lot of leadership skills and a lot of credibility with the Street.''

Mr. Plumeri, who favors two-tone shirts and flashy ties, was chosen as chief executive of Willis six years ago by Henry R. Kravis, one of the founding members of Kohlberg Kravis. He and Mr. Kravis remain close and Kohlberg Kravis, which briefly owned Willis, still has one of its executives on the Willis board.

Mr. Plumeri's visit to Nashville was the first stop on a tour of Willis's operations in the United States and England to lay out expansion plans for the next four years. He warmed up his audience in a two-hour talk with stories about growing up Italian-American in a working-class section of Trenton, N.J., and said Willis planned to expand its business in coverage for airlines, cargo and cruise ships and armored car companies.

He also said it would expand beyond its traditional base of midsize companies to more small and large customers, and that Willis would extend its reach in China and India.

Mr. Plumeri said he was shooting to double the company's stock price to $80 in the next four years. The stock closed yesterday at $40.39 in regular trading, up 10 percent for the year and about 9 percent from its price in late 2004, before Eliot Spitzer, the New York attorney general and governor-elect, accused the industry of taking kickbacks and steering business. In a lawsuit, he also accused Marsh of rigging bids.

The brokers denied that they had acted improperly. But they agreed to stop receiving undisclosed payments from insurance companies and to pay hundreds of millions to settle the cases. In addition, 20 executives at insurance companies and at Marsh pleaded guilty to criminal charges relating to bid-rigging.

Marsh's stock closed yesterday at $30.56, up from a low for the year in August of $26.16, but still down 34 percent from immediately before the accusations. The stock of Aon, a Chicago company that by most measures is the second-largest broker, closed at $35.50, up less than 1 percent for the year, but about 30 percent higher than before the scandal.

For the first nine months of this year, Willis has reported revenue growth of 8 percent, compared with 5 percent for Aon and 2 percent for Marsh. Willis's credit rating at Standard & Poor's has also risen a notch while the ratings of Marsh and Aon have declined -- though Aon's rating remains a notch higher than Willis's.

Willis began winning business from rivals as the claims of misconduct upended decades-long relationships. And Mr. Plumeri moved in to recruit brokers that analysts say are bringing many of their old customers along to their new firm.

''There is a general shift in how large clients perceive the brokers,'' said Meyer Shields, an analyst at Stifel, Nicolaus & Company.

Marsh, the hardest hit by the scandal, has laid off more than 5,000 employees and eliminated perks like limousines and executive dining rooms that had made the brokerage business one of the clubbiest in the world.

Now the big brokers are operating along lines that Willis adopted when Mr. Plumeri became chief executive. ''More on the Charles Schwab model; no frills,'' said Chris O'Kane, the chief executive of Aspen Insurance Holdings, a recent start-up insurer that specializes in catastrophe coverage.

Mr. Plumeri played halfback and second base at the College of William and Mary and likes to say that ''Willis is a team sport.'' He insists that employees wear lapel pins with the Willis name superimposed on a rippling flag. To encourage chatter and cooperation, he has chopped down the walls of office cubicles to half-size and said that when Willis moves shortly into new space in New York and London, the executive offices will have no doors.

At the end of Mr. Plumeri's day in Nashville, Willis threw a party for everyone, from the mailroom staff to the top regional executives.

The music was loud and the dance floor was crowded. Mr. Plumeri tossed off his suit jacket and jumped into a long conga line. Then he moved onto the dance floor as the music shifted to disco, raised an arm in a pumping motion and began gyrating with a handful of employees.

For Mr. Plumeri, it was all part of the job. ''This is about feeling good,'' he said. ''I want people to feel good about themselves and about the company. And I want them to know somebody human is running the place.''

Photo: Joseph J. Plumeri, speaking to employees in Nashville, wants to expand Willis Group Holdings. (Photo by Christopher Berkey for The New York Times)